Dim sum keeps going even as dollar bonds stall

Beijing Enterprises Water and China Merchant Holdings are looking to tap the dim sum market, while Europe’s woes have kept dollar bonds at bay.
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Hong Kong's debt market remains open for renminbi borrowers (Eyepress News)
<div style="text-align: left;"> Hong Kong's debt market remains open for renminbi borrowers (Eyepress News) </div>

While the G3 bond market has been shut for almost two weeks, issuance in the dim sum bond market has continued to flourish. A handful of issuers such as Beijing Enterprises Water and China Merchant Holdings are meeting investors this week, and New Zealand dairy giant Fonterra closed a small Rmb300 million ($46 million) dim sum bond last week.

Since Kia Motors priced its $500 million bond on June 8, not a single Asian borrower has tapped the G3 market. Instead, a growing backlog of companies — including NTPC, Kookmin Bank, Aegis, Bharti Airtel, Korea South East Power, CLP Power and Aluco — have concluded roadshows without launching deals. Issuers faced a similar experience around this time last year, largely thanks to the same problem: the prospect that Greece could trigger a wave of defaults in the eurozone.

In contrast, although the dim sum bond market has also slowed, deals are still being printed and issuers are continuing to test investors’ appetite. 

Beijing Enterprises Water has mandated Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley as joint global coordinators and bookrunners on its dim sum benchmark. DBS, Macquarie and Standard Chartered are also bookrunners.

The transaction will be launched following a roadshow in Hong Kong and Singapore that started yesterday. The size and tenor have not been decided, but the company is looking at a possible five-year bond, which will not be rated. Beijing Enterprises Water is the flagship company of Beijing Enterprises Holdings in the water service market.

Elsewhere, Rainbow Days, a wholly owned subsidiary of China Merchant Holdings has mandated Bank of China (Hong Kong), Deutsche Bank and Standard Chartered as joint global coordinators and bookrunners for its proposed dim sum bond. The issuer is also contemplating issuing a benchmark dollar guaranteed senior note, together with or in replacement of its dim sum bond.

The guarantor is a wholly owned flagship overseas subsidiary of China Merchants Group. The roadshow kicked off in Hong Kong last week and moves on to Singapore and London this week. A deal could come as soon as Thursday. Similar to Beijing Enterprises, the notes are also not rated.

On Friday, despite volatile markets, New Zealand dairy firm Fonterra priced its Rmb300 million ($46 million) three-year bond, the first renminbi transaction by an Australasian company and the tightest pricing for any three-year offshore renminbi bond issued by a company. HSBC was sole bookrunner.

Fonterra accounts for 45% of the international dairy trade and is looking to expand further into China, having had trading relations with the country since 1970 through its predecessor, the NZ Dairy Board. It has further expansion plans for China — for sales of dairy products and creating more dairy farms.

According to one person familiar with the deal, while Asian high-yield names were struggling in the G3 and dim sum secondary markets last week, there was a flight to safety and investment-grade names tightened in the dim sum market thanks to limited supply.

Fonterra’s deal priced at a yield of 1.1%, at the tight end of the revised guidance of 1.15% area, plus or minus 5bp. The order book was Rmb1.75 billion with 40 accounts participating. Hong Kong investors bought 70%, Singapore investors bought 15% and others 15%. By investor type, fund managers bought 81%, private banks 10%, banks 7% and others 2%.

The bonds priced at par and, though they are somewhat illiquid, they were quoted at 100.10/100.35 yesterday morning, above the par issue price. Fonterra’s issue was rated AA-(stable) by Fitch and A+ (stable) by S&P, and its decision to rate its bonds was viewed positively by one debt specialist, who noted that this is in line with a maturing market.

In contrast to the G3 bond markets, where unrated deals are rare, many dim sum bonds are unrated — which means that investors have to do more work to track the credit.

In the dollar market, Zijin International Finance has mandated BOC International as a sole bookrunner and sole lead for its proposed Reg-S dollar bond. BNP Paribas is a co-manager. The issuer is a wholly owned subsidiary of Zijin Mining Group.

Zijin Mining will enter into a keepwell agreement for the issuance of the bonds, which will also have a standby letter of credit from Bank of China. The bonds are expected to be rated A1 by Moody’s. The deal is expected to be launched following an investor roadshow in Asia and Europe which started yesterday.

¬ Haymarket Media Limited. All rights reserved.
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